Sotherly Hotels Inc. Reports Financial Results for the Second Quarter Ended June 30, 2022

WILLIAMSBURG, Va., Aug. 11, 2022 (GLOBE NEWSWIRE) -- Sotherly Hotels Inc. (NASDAQ: SOHO), (“Sotherly” or the “Company”), a self-managed and self-administered lodging real estate investment trust (a “REIT”), today reported its consolidated results for the second quarter ended June 30, 2022. The Company’s results include the following*:

(*)           Earnings before interest, taxes, depreciation and amortization (“EBITDA”), hotel EBITDA, funds from operations (“FFO”) available to common stockholders and unitholders, adjusted FFO available to common stockholders and unitholders, FFO per common share and unit and adjusted FFO per common share and unit are non-GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. The Company is the sole general partner of Sotherly Hotels LP, a Delaware limited partnership (the “Operating Partnership”), and all references in this release to the “Company”, “Sotherly”, “we”, “us” and “our” refer to Sotherly Hotels Inc., its Operating Partnership and its subsidiaries and predecessors, unless the context otherwise requires or it is otherwise indicated.

HIGHLIGHTS

• RevPAR. Room revenue per available room (“RevPAR”) for the Company’s composite portfolio, which includes the rooms participating in our rental programs at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences, increased to $128.63 for the three months ended June 30, 2022, from $94.93 in the comparable period in 2021 and was 0.5% above RevPAR of $128.05 for the comparable period in 2019. Changes in RevPAR were driven by an increase in the average daily rate (“ADR”) to $189.24 for the three months ended June 30, 2022, from $161.00 for the comparable period in 2021 and by an increase in occupancy to 68.0% from 59.0% in the comparable 2021 period. However, while ADR for the three months ended June 30, 2022, was 12.7% higher than ADR for the comparable period in 2019, occupancy for the three months ended June 30, 2022, was still 8.3% below the 76.3% occupancy achieved during the comparable 2019 period.
• Revenue. Total revenue increased to approximately $47.2 million for the three months ended June 30, 2022 from approximately $34.4 million during the comparable period in 2021. Total revenue for the three months ended June 30, 2022 was 8.5% below total revenue of approximately $51.5 million during the comparable 2019 period.
• Common Dividends. As approved by its Board of Directors, the Company has suspended its regular quarterly cash dividend in order to preserve liquidity. Accordingly, the Company did not pay a dividend on its common stock and common units for the quarter ended June 30, 2022. The Board of Directors will continue to monitor the situation and assess future quarterly common dividend declarations. Per the terms of the Company’s preferred stock, the Company cannot make any common dividend payments unless full cumulative distributions have been declared and paid for past distribution periods for each series of preferred stock.
• Hotel EBITDA. The Company increased production of Hotel EBITDA to approximately $14.8 million for the three months ended June 30, 2022, from approximately $9.7 million during the comparable period in 2021. Hotel EBITDA for the three months ended June 30, 2022, was approximately $0.8 million below the Hotel EBITDA generated in the comparable 2019 period. For the six-month period ending June 30, 2022, Hotel EBITDA increased 78.5% or approximately $10.9 million over the six months ended June 30, 2021. However, Hotel EBITDA for the six months ended June 30, 2022, was still approximately $4.0 million below the approximately $28.8 million Hotel EBITDA produced during the comparable 2019 period.
• Adjusted FFO attributable to common stockholders and unitholders. For the three-month period ending June 30, 2022, adjusted FFO attributable to common stockholders and unitholders increased 444.4%, or approximately $5.1 million, over the three months ended June 30, 2021, from approximately $1.1 million to approximately $6.2 million. For the six-month period ending June 30, 2022, adjusted FFO available to common stockholders and unitholders increased 310.8% or approximately $11.0 million over the six months ended June 30, 2021.
  

Dave Folsom, President and Chief Executive Officer of Sotherly Hotels Inc., commented, "We continued to witness significant recovery in demand in the second quarter and were very pleased with the resulting increases in year-over-year revenues and Hotel EBITDA. Additionally, compared to the second quarter of 2019, prior to the pandemic, our portfolio achieved 91.5% of total revenues and 94.8% of Hotel EBITDA. These are compelling results and point to not only the strength and pace of the lodging recovery, but the position and management of our assets in their respective markets. We expect this momentum to continue, as same-store composite ADR during the month of July outperformed the same period in 2019 by 11.7%, leading to a 1.4% gain in RevPAR. The quarter also saw the full repayment and extinguishment of the company’s outstanding loan with Kemmons Wilson, which was issued in June 2020 to provide liquidity as the Company experienced some of the strongest impacts of the pandemic. With the repayment of this note, we are now in a much stronger position to focus on our core business and address other aspects of our balance street, as we continue to see the ongoing recovery in the lodging markets."

ESTIMATED CHANGE IN CASH

The Company estimates the cash used across its portfolio for the third quarter to range between approximately $1.70 million to $1.95 million based on the following assumptions:

• Hotel-level positive cash flow for the quarter of approximately $10.00 million to $10.25 million;
• Corporate-level G&A cash use of $1.75 million;
• Capital expenditures of approximately $2.10 million;
• Scheduled aggregate debt service of approximately $6.30 million for the quarter; and
• Other incremental reductions of principal and deferred interest of approximately $1.80 million.
  

Balance Sheet/Liquidity

As of June 30, 2022, the Company had approximately $31.4 million of available cash and cash equivalents, of which approximately $7.4 million was reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had principal balances, net of approximately $333.3 million in outstanding debt, including mortgage and unsecured principal balances, at a weighted average interest rate of approximately 4.76%.

2022 Outlook

For the third quarter of 2022, the Company expects Composite RevPAR to be approximately 6.5% ahead of the third quarter of 2019, much improved from the third quarter of 2021. Due to the uncertainties related to the lodging industry and the effects of the COVID-19 pandemic, the Company is foregoing full-year guidance for 2022.

Portfolio and Balance Sheet Update

On June 10, 2022, Raleigh Hotel Associates, LLC, a Delaware limited liability company and an affiliate of the Company, completed the sale of the DoubleTree by Hilton Raleigh-Brownstone University hotel located in Raleigh, North Carolina to CS Acquisition Vehicle, LLC, a Delaware limited liability company, for a purchase price of $42.0 million. The Company used approximately $18.6 million of the net cash proceeds from the sale of the hotel to repay the existing mortgage on the property and approximately $19.8 million of the net cash proceeds to repay a portion of the secured notes (the "KW Notes") with KWHP SOHO, LLC and MIG SOHO, LLC (together, “KW”) as required by the terms of the KW Notes. The Company intends to use the remaining net cash proceeds for general corporate purposes. KW received approximately $19.8 million of the proceeds from the sale of the hotel, of which approximately $13.3 million was applied toward principal, approximately $6.3 million was applied toward the exit fee owed under the KW Notes, and approximately $0.2 million was applied toward accrued interest. Additionally, the terms of the KW Notes allowed for the release of a portion of the interest reserves in the amount of approximately $1.6 million, of which approximately $1.1 million was applied toward principal and approximately $0.5 million was applied toward the exit fee.

On June 28, 2022, affiliates of the Company, entered into amended loan documents to modify the existing mortgage loan (as amended, the “Mortgage Loan”) on the Hotel Alba Tampa with the existing lender, Fifth Third Bank. Pursuant to the amended loan documents, the Mortgage Loan: (i) has an increased principal balance of $25.0 million; (ii) includes an extended maturity date of June 30, 2025, which may be further extended for two additional periods of one year each, subject to certain conditions; (iii) bears a floating interest rate of SOFR plus 2.75%, subject to a floor rate of 2.75%; (iv) amortizes on a 25-year schedule and requires payments of monthly interest plus $40,600 monthly amortization payments; and (v) is guaranteed by the Operating Partnership up to $12.5 million, with the guaranty reducing to $6.25 million upon the successful achievement of certain performance milestones. On July 11, 2022, the Company also entered into a swap agreement with Fifth Third Bank. Pursuant to the swap agreement: (a) the loan rate is swapped for a fixed interest rate of 5.576%; (b) notional amounts approximate the declining balance of the loan; and (c) the Company is responsible for any potential termination fees associated with early termination of the swap agreement.

Pursuant to the terms of the KW Notes, the Company was required to use net cash proceeds received in connection with the refinance of the Hotel Alba Tampa, described above, to make certain payments to KW as lenders under the KW Notes. On June 29, 2022, the Company used the proceeds from the refinance of the Hotel Alba Tampa, along with approximately $0.21 million of cash on hand as well as the balance of the interest reserve under the KW Notes of approximately $0.5 million, to satisfy and pay in full the KW Notes. KW received approximately $8.27 million in satisfaction of the KW Notes, of which approximately $5.61 million was applied toward principal, approximately $2.64 million was applied toward the exit fee owed under the KW Notes, and approximately $0.02 million was applied toward accrued interest. Concurrent with the cancellation of the KW Notes, the following agreements were also terminated in accordance with their terms: (i) Note Purchase Agreement; (ii) Pledge and Security Agreement; (iii) Board Observer Agreement; and (iv) other related ancillary agreements.

Earnings Call/Webcast

The Company will conduct its second quarter 2022 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Thursday, August 11, 2022. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 844-200-6205 (United States) or +1 929-526-1599 (International) and enter access code 927367. To participate on the webcast, log on to www.sotherlyhotels.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on August 11, 2022 through August 25, 2022. To access the rebroadcast, dial 866-813-9403 or +44 204-525-0658 and enter access code 045282.

About Sotherly Hotels Inc.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. Sotherly may also opportunistically acquire hotels throughout the United States. Currently, the Company’s portfolio consists of investments in ten hotel properties, comprising 2,786 rooms, as well as interests in two condominium hotels and their associated rental programs. The Company owns hotels that operate under the Hilton Worldwide and Hyatt Hotels Corporation brands, as well as independent hotels. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information, please visit www.sotherlyhotels.com.

Contact at the Company:

Mack Sims
Vice President – Operations & Investor Relations
Sotherly Hotels Inc.
306 South Henry Street, Suite 100
Williamsburg, Virginia 23185
757.229.5648

Forward-Looking Statements

This news release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our current strategies, expectations, and future plans are generally identified by our use of words, such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative, but the absence of these words does not necessarily mean that a statement is not forward-looking. All statements regarding our expected financial position, business and financing plans are forward-looking statements.

Factors which could have a material adverse effect on the Company’s future operations, results, performance and prospects, include, but are not limited to: national and local economic and business conditions that affect occupancy rates and revenues at our hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition and new supply of hotel rooms, increases in wages, energy costs and other operating costs; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements, including our recently negotiated forbearance agreements and loan modifications and, as necessary, to refinance or seek an extension of the maturity of such indebtedness or further modification of such debt agreements; risks associated with adverse weather conditions, including hurricanes; impacts on the travel industry from pandemic diseases, including COVID-19; the availability and terms of financing and capital and the general volatility of the securities markets; management and performance of our hotels; risks associated with maintaining our system of internal controls; risks associated with the conflicts of interest of the Company’s officers and directors; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in our current and proposed market areas; risks associated with our ability to maintain our franchise agreements with our third party franchisors; our ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; our ability to successfully expand into new markets; legislative/regulatory changes, including changes to laws governing taxation of real estate investment trusts (“REITs”); the Company’s ability to maintain its qualification as a REIT; and our ability to maintain adequate insurance coverage. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved.

Additional factors that could cause actual results to vary from our forward-looking statements are set forth under the section titled “Risk Factors” in our Annual Report on Form 10-K, in this report and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

Financial Tables Follow…

SOTHERLY HOTELS INC.
CONSOLIDATED BALANCE SHEETS

SOTHERLY HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

SOTHERLY HOTELS INC.
KEY OPERATING METRICS
(unaudited)

The following tables illustrate the key operating metrics for the three months ended June 30, 2022, 2021 and 2019, respectively, for the Company’s wholly-owned properties (“actual” portfolio metrics), accordingly, the actual data does not include the participating condominium hotel rooms of the Hyde Resort & Residences and the Hyde Beach House Resort & Residences. The ten wholly-owned properties in the portfolio that were under the Company’s control during the three and six months ended June 30, 2022 and the corresponding periods in 2021 and 2019 are considered same-store properties (“same-store” portfolio metrics). Accordingly, the same-store data does not reflect the performances of the Sheraton Louisville Riverside which was sold in February 2022, or the DoubleTree by Hilton Raleigh-Brownstone University which was sold in June 2022. The composite portfolio metrics represent the Company’s wholly-owned properties and the participating condominium hotel rooms at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences, during the three and six months ended June 30, 2022 and the corresponding periods in 2021 and 2019. The same-store (composite) portfolio metrics includes all properties with the exceptions of the Sheraton Louisville Riverside, DoubleTree by Hilton Raleigh-Brownstone University and the Hyde Beach House Resort & Residences, during the three and six months ended June 30, 2022 and the corresponding periods in 2021 and 2019.

SOTHERLY HOTELS INC.
SUPPLEMENTAL DATA
(unaudited)

The following tables illustrate the key operating metrics for the three and six months ended June 30, 2022, 2021 and 2019, respectively, for each of the Company’s wholly-owned properties during each respective reporting period, irrespective of ownership percentage during any period.

Occupancy

ADR

RevPAR

SOTHERLY HOTELS INC.
RECONCILIATION OF NET LOSS TO
FFO, Adjusted FFO, EBITDA and Hotel EBITDA
(unaudited)

Non-GAAP Financial Measures

The Company considers the non-GAAP financial measures of FFO (including FFO per share), Adjusted FFO, EBITDA and hotel EBITDA to be key supplemental measures of the Company’s performance and could be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance. These measures do not represent cash generated from operating activities determined by generally accepted accounting principles (“GAAP”) or amounts available for the Company’s discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP.

FFO

Industry analysts and investors use Funds from Operations (“FFO”), as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, gains or losses from involuntary conversions of assets, plus certain non-cash items such as real estate asset depreciation and amortization or impairment, stock compensation costs and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by itself.

The Company considers FFO to be a useful measure of adjusted net income (loss) for reviewing comparative operating and financial performance because we believe FFO is most directly comparable to net income (loss), which remains the primary measure of performance, because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies. Although FFO is intended to be a REIT industry standard, other companies may not calculate FFO in the same manner as we do, and investors should not assume that FFO as reported by us is comparable to FFO as reported by other REITs.

Adjusted FFO

The Company presents adjusted FFO, including adjusted FFO per share and unit, which adjusts for certain additional items that are not in NAREIT’s definition of FFO including changes in deferred income taxes, any unrealized gain (loss) on hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, gains on extinguishment of preferred stock, aborted offering costs, loan modification fees, franchise termination costs, costs associated with the departure of executive officers, litigation settlement, over-assessed real estate taxes on appeal, management contract termination costs, operating asset depreciation and amortization, change in control gains or losses, ESOP and stock compensation expenses and acquisition transaction costs. We exclude these items as we believe it allows for meaningful comparisons between periods and among other REITs and is more indicative than FFO of the on-going performance of our business and assets. Our calculation of adjusted FFO may be different from similar measures calculated by other REITs.

EBITDA

The Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of those items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrued directly to shareholders.

Hotel EBITDA

The Company defines hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) income tax provision or benefit, (4) depreciation and amortization, (5) impairment of long-lived assets or investments, (6) gains and losses on disposal and/or sale of assets, (7) gains and losses on involuntary conversions of assets, (8) unrealized gains and losses on derivative instruments not included in other comprehensive income, (9) loss on early debt extinguishment, (10) gain on exercise of development right, (11) corporate general and administrative expense, and (12) other operating revenue not related to our wholly-owned portfolio. We believe this provides a more complete understanding of the operating results over which our wholly-owned hotels and its operators have direct control. We believe hotel EBITDA provides investors with supplemental information on the on-going operational performance of our hotels and the effectiveness of third-party management companies operating our business on a property-level basis. The Company’s calculation of hotel EBITDA may be different from similar measures calculated by other REITs.